Sunday, October 01, 2006

Saving the US economy

Our WiMW texts are prone to declare that the Marshall Plan was an effort to secure markets for US goods. European recovery was a means of 'assisting the American ... econom[y]' (Young & Kent p91). The US 'could hardly expect to function hegemonically if Europeans lacked the dollars to purchase its products' (Gaddis p38, citing McCormick 1989). A European collapse would lead to 'unemployment, depression' for the US economy (Crockatt p78, quoting FRUS 1947). It's a novel idea (novel for me, anyhow) but I don't see the logic. How did this 'global markets' strategy actually work?

If the US had 150 million people in 1946, the $20 billion invested in the Marshall Plan came to $1,333 for each American man, woman, and child--about 15,000 of today's much-devalued greenbacks. That's what I paid for my Honda Accord DX, and indeed $1,300 in 1946 would likely have bought a stripped-down Ford V8. (Nota bene: a 'billion' in American usage is a thousand million, or nine zeros. 'A billion here, a billion there', as Sen. Everett Dirksen is supposed to have said; 'pretty soon it adds up to real money'.)

In 1946, the US basically owned all the money there was in the world, along with much or most of its productive capacity. Sending billions to Europe (and other billions to Japan, of course) certainly did the US no harm, since the recipients had to spend much of it on US goods. But why was that necessary? If instead the US Treasury had written a check to each American in the amount of $1,333, wouldn't the result for the US economy have been the same--or better? The citizens would surely have spent the money locally, none of it diverted to the Frankfurt barber or Manchester publican.

All the citations seem to be historians quoting other historians, with the exception of Crockatt and his undersecretary of state. Can anyone point me to the words of an American policy-maker who argued in 1946 that money sent to Europe would rescue the US economy? Equally, I would appreciate a citation to an economist who'd explain why this roundabout approach made any sense at all. I wonder if it isn't just a matter of today's globalized economy being projected onto 1945?


At 8:51 AM, Blogger Tom said...


I am celebrating the day of German unification today, a public holiday here and have thus had time to ruminate about the economics of the Marshall plan. I agree with you that its bizarre to argue that U.S. economic policy drove the Marshall plan. The economic result for the United States was certainly a welcome boost and it stabilised financial markets but that can’t have been the main motivating factor.

I think part of the reason that we read these differing motivations for the Marshall plan could be that a) believing that economic aid was part of Uncle Sam’s ulterior need to feed the capitalist beast at home goes down easier than the alternatives and b) it also provides an explanation for why the U.S. did what it did which fits with the Keynesian, free market economic logic that characterises the latter half of the 20th century. As for globalisation, Stiglitz’s book Globalisation and its Discontents makes the point that IMF and the other institutions are all about ideology and bad economics which would suggest that the earlier Marshall plan likely had the same roots. Indeed in more recent suggestions for Marshall plans for Africa, Afghanistan et al there is no suggestion that the U.S. is doing to stave off a depression at home…

Incidentally, as a non-economist, but interested reader, the following article was good in explaining why Keynesian economists had talked themselves into believing that a crash could occur after the war (and 10 million service men return) and also as well why economists continue to believe that wars (and whopping budget deficits) are good for the economy…

World War II and the Triumph of Keynesianism, Robert Higgs, March 1995


(Sorry for the slight ramble!)

At 9:06 AM, Blogger Dan Ford said...

Thanks for the pointers! (I agree that Keynesism had a 50-year run in the US, but I would date it from the 1930s to the 1980s, from Roosevelt to Reagan.)

At 11:10 PM, Blogger Rex Michael Dillon said...


You are my hero. I just looked at some of your writings. I would like to say that it is interesting to me that a pair of striking legacies of WWII is how on the American side, the Flying Tigers ultimately evolve into a package delivery service that is eventually swallowed up by FedEX. Conversely, elements of the French resistance used its wartime underground networks postwar for smuggling drugs. Lastly, the Third Man showed it was not only the French who were willing to capitalize on a bad situation postwar... and another film worth considering for our Cold War discussion is the film Le Petit Soldat - supressed by censors in France for its depiction of the French intelligence use of torture ...


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